“… So to resolve the supply demand gap, it doesn’t really even matter what commodity prices do in the short term or interest rates do in the short term, they simply need to drill more holes, to prove up more reserves ... which means there’s a key long-term demand for those metals which is going to drive our industry for some time to come.”
Imdex warns supply chains ‘strung like a piano wire’
Paul House, CEO of IMDEX, says supply chains are “strung like a piano wire”. Trevor Collens
Mining technology provider Imdex has warned COVID-19 disruptions will linger for another two years, spurring companies to build up inventories and exacerbating the strain on supply chains.
Handing down an 81 per cent rise in first-half profit, Imdex chief executive Paul House said delivery times for drilling rigs and parts had blown out, with some of its freight shipping increasing from 20-25 days to 90-95 days.
He added people in the logistics industry are advising it could take nine months just to clear the backlog in supply chains, assuming the “cork” blocking things up can be instantly pulled out, which was unlikely.
Paul House, CEO of IMDEX, says supply chains are “strung like a piano wire”. Trevor Collens
Perth-based Mr House, whohas been critical of Western Australia’s backflip on its planned February 5 reopening of borders, said labour costs were also on the rise amid hot competition, and “COVID-19 related industry challenges” will remain in “some form” for one to two years.
“I think humans have a bit of an optimism bias towards ‘surely we’re at the end’, but we were at the end until omicron came and February 5th was coming, and then it wasn’t, so I think it’s just a reality,” he said.
“COVID-19 will continue to evolve and as economies reopen and supply chains shift and people start to navigate a new normal, you’re going to see regulations in one shape or form change.
“So it’s less about COVID-19 being a fear, and it’s more about how are we constantly changing the way we’re choosing to work with COVID-19 in our workplace and the additional strain that places on being able to get a nice cadence going in any business.”
Fellow Perth-based mining services company Emeco last week called out similar challenges, noting tighter labour markets and absenteeism from COVID-19 was playing out around the country and the “impact of an eventual WA border opening will require close monitoring”.
Imdex’s net profit rose 81 per cent to a record $24.4 million in the six months ended December 31 from the year-earlier period, as revenue leapt 35 per cent amid the commodities boom. The company, which sells and leases drilling optimisation products and sensors and other technology to miners around the world, boosted its fully franked interim dividend to 1.5¢.
Imdex shares slipped more than 3 per cent to $2.86 in a weaker broader market, as it flagged “some additional expenses due to the inflationary environment” and increased travel and marketing costs in the second half.
To combat the supply chain bottlenecks, Imdex lifted its inventories 36 per cent to $56.3 million in the half, saying it had to expand manufacturing capabilities and increased inventory levels to ensure it could continue to supply clients.
Mr House last month, however, toldThe Australian Financial Reviewthe uncertainty surrounding WA’s borders meant it was reassessing plans to set up a new manufacturing facility in the state, potentially doing it elsewhere.
“Historically we would have called it $1 million work of stock sitting in a warehouse ready on call to go to a client. Today we have $1 million worth of stock, but it’s not in the warehouse – it’s on the water somewhere en route,” Mr House said.
“The whole system is strung like a piano wire at the moment, so people have had to generate additional working capital inventory just to try and ease the risk of delivery pressure or delivery failure. Many industries are looking at 20-30 per cent increase in inventories just to deal with the longer delivery times in their supply chain.”
Amidhot demand for metals used to make batteries, Mr House said Imdex’s proportion of revenue from copper, cobalt, nickel and lithium miners would rise from 35 per cent in coming years given they make up around 50 per cent of new drilling projects globally.
“The reality is today that demand for copper, cobalt, nickel, lithium etc to meet the battery and electric vehicle and decarbonisation trends is far greater than any supply that exists in the market today,” he said.
“So to resolve the supply demand gap, it doesn’t really even matter what commodity prices do in the short term or interest rates do in the short term, they simply need to drill more holes, to prove up more reserves ... which means there’s a key long-term demand for those metals which is going to drive our industry for some time to come.”
(20min delay)